QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September
30, 2013

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from
to

Commission file number: 814-00967

WHITEHORSE FINANCE, INC.

(Exact Name of Registrant as Specified
in its Charter)

Delaware

45-4247759

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

1450 Brickell Avenue, 31 st Floor

Miami, Florida

33131

(Address of Principal Executive Offices)

(Zip Code)

(305) 379-2322

(Registrant’s Telephone Number,
Including Area Code)

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x
No ¨

Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
¨ No
¨

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of
“large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

x

Smaller reporting company

¨

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes
¨ No
x

As of November 13, 2013 the Registrant
had 14,977,056 shares of common stock, $0.001 par value, outstanding.

WHITEHORSE FINANCE, INC.

TABLE OF CONTENTS

Page

Part I.

Financial Information

Item 1.

Financial Statements

Consolidated Statements of Assets and Liabilities as of September 30, 2013 (Unaudited) and December 31, 2012

3

Consolidated Statements of Operations for the three and nine months ended September 30, 2013 (Unaudited) and 2012 (Unaudited)

4

Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2013 (Unaudited) and 2012 (Unaudited)

(1) For the three and nine months ended September 30, 2012,
the Company did not have common shares outstanding and therefore weighted average shares outstanding information and per share
data for this period are not provided.

See notes to the consolidated financial statements

4

WhiteHorse Finance, Inc.

Consolidated Statements of Change in
Net Assets (Unaudited)

(in thousands, except share and per
share data)

Members’

Common Stock

Paid-in Capital in

Net Investment

Net Realized Loss on

Net Unrealized Depreciation on

Total Net

Equity

Shares

Par amount

Excess of Par

Income

Investments

Investments

Assets

Balance at January 1, 2012

$

—

—

$

—

$

—

$

—

$

—

$

—

$

—

Contributions of members' equity

359,754

—

—

—

—

—

—

—

Distributions of members' equity

(90,675

)

—

—

—

—

—

—

—

Net increase in net assets resulting from operations

31,585

—

—

—

—

—

—

—

Balance at September 30, 2012

$

300,664

—

$

—

$

—

$

—

$

—

$

—

$

—

Balance at January 1, 2013

$

—

14,965,624

$

15

$

228,466

$

1,164

$

(71

)

$

(525

)

$

229,049

Stock issued in connection with dividend reinvestment plan

—

11,432

—

180

—

—

—

180

Net increase (decrease) in net assets resulting from operations

—

—

—

—

15,141

—

(2,446

)

12,695

Distributions declared

—

—

—

—

(15,942

)

—

—

(15,942

)

Balance at September 30, 2013

$

—

14,977,056

$

15

$

228,646

$

363

$

(71

)

$

(2,971

)

$

225,982

See notes to the consolidated financial statements

5

WhiteHorse Finance, Inc.

Consolidated Statements of Cash Flows
(Unaudited)

(in thousands, except share and per
share data)

Nine months ended September 30,

2013

2012

Cash flows from operating activities

Net increase in net assets resulting from operations

$

12,695

$

31,585

Adjustments to reconcile net income to net cash used in operating activities:

Paid in kind income

(591

)

(4,942

)

Net realized losses on investments

-

2,265

Net unrealized depreciation (appreciation) on investments

2,446

(5,375

)

Amortization of discount

(820

)

(1,784

)

Amortization of deferred financing costs

444

-

Acquisition of investments

(148,277

)

(58,656

)

Proceeds from principal payments and sales of portfolio investments

113,059

15,681

Net changes in operating assets and liabilities:

Interest receivable

(524

)

(5,750

)

Due from related party

-

(2,565

)

Prepaid expenses and other receivables

303

-

Payable for investments purchased

33,038

4,115

Management fees payable

2,865

-

Accounts payable and accrued expenses

(489

)

616

Restricted cash and cash equivalents

(38,460

)

(2,386

)

Net cash used in operating activities

(24,311

)

(27,196

)

Cash flows from financing activities

Proceeds from members’ equity contributions

-

51,568

Payment of members’ equity distributions

-

(18,586

)

Senior notes issued

30,000

-

Repayment of unsecured term loan

(35,000

)

-

Repayment of borrowings on credit facility

(51,250

)

51,250

Deferred financing costs

(1,247

)

(3,577

)

Distributions paid to common stockholders, net of distributions reinvested

(12,061

)

-

Net cash (used in) provided by financing activities

(69,558

)

80,655

Net change in cash and cash equivalents

(93,869

)

53,458

Cash and cash equivalents at beginning of period

156,123

-

Cash and cash equivalents at end of period

$

62,254

$

53,458

Supplemental disclosure of cash flow information:

Interest paid

$

3,750

$

-

Supplemental noncash disclosures:

Dividends reinvested

$

180

$

-

Contribution of investments

$

-

$

308,186

Distribution of investments

$

-

$

72,088

See notes to the consolidated financial statements

6

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments
(Unaudited)

September 30, 2013

(in thousands, except share and per
share data)

Investment Type

Spread

Above

Index(1)

Interest

Rate(2)

Maturity

Date

Principal

Amount

Amortized

Cost

Fair

Value

Fair Value

As A

Percentage

Of Net Assets

North America

Aerospace & Defense

ILC Industries, LLC

Second Lien Secured Term
Loan

L+10.00%

11.50%

6/14/19

$

5,000

$

4,878

$

4,860

2.15

%

(1.50% Floor)

Building Products

TCO Funding Corp.

First Lien Secured Term
Loan

L+7.50%

9.50%

4/27/15

17,538

17,374

17,608

7.79

(2.00% Floor)

Consumer Finance

Oasis Legal Finance, LLC

Second Lien Secured Term
Loan

N/A(4)

10.50%

9/30/18

10,000

9,800

9,800

4.34

Diversified Support Services

Smile Brands Group Inc.

First Lien Secured Term
Loan

L+6.25%

7.50%

8/16/19

12,000

11,764

11,904

5.27

(1.25% Floor)

ARSloane Acquisition, LLC

Second
Lien Secured Term Loan

L+10.50%

11.75%

10/1/20

4,000

3,920

3,920

1.73

(1.25% Floor)

16,000

15,684

15,824

7.00

Electronic Equipment &
Instruments

AGS, LLC

First Lien Secured Term
Loan

L+10.00%

11.50%

8/15/16

17,309

16,769

16,444

7.28

(1.50% Floor)

First Lien Secured Initial
Delayed Draw

L+10.00%

11.50%

8/15/16

1,129

1,093

1,072

0.47

(1.50% Floor)

First
Lien Secured Secondary Delayed Draw

L+10.00%

11.50%

8/15/16

1,129

1,090

1,072

0.47

(1.50% Floor)

19,567

18,952

18,588

8.22

Health Care Distributors

Comprehensive Decubitus
Therapy, Inc.

First Lien Secured Term
Loan

L+10.50%

15.00%

3/15/18

14,741

14,484

14,623

6.47

(1.50% Floor)

(3.00%PIK)

First
Lien Secured Revolving Loan

L+10.50%

15.00%

3/15/18

1,733

1,699

1,720

0.76

(1.50% Floor)

(3.00%PIK)

16,474

16,183

16,343

7.23

Health Care Facilities

Genoa Healthcare, LLC

First Lien Secured Term
Loan

L+4.25%

7.25%

8/10/14

3,787

3,696

3,665

1.62

(3.00% Floor)

Second Lien Secured Term
Loan

L+9.50%

14.00%

2/10/15

27,723

27,678

27,335

12.10

(3.00% Floor)

(1.50%PIK)

Grupo HIMA San Pablo, Inc

First Lien Secured Term
Loan

L+7.00%

8.50%

1/31/18

14,925

14,656

14,612

6.47

(1.50% Floor)

Second
Lien Secured Term Loan

N/A (4)

13.75%

7/31/18

1,000

954

950

0.42

47,435

46,984

46,562

20.61

7

Investment Type

SpreadAboveIndex(1)

InterestRate(2)

MaturityDate

PrincipalAmount

AmortizedCost

FairValue

Fair ValueAs APercentageOf Net Assets

Homebuilding

Orleans Homebuilders, Inc.

First Lien Secured Term
Loan

L+8.50%

10.50%

2/14/16

$

16,387

$

16,458

$

16,551

7.32

%

(2.00% Floor)

Integrated Telecommunication
Services

Securus Technologies, Inc.

Second
Lien Secured Term Loan

L+7.75%

9.00%

4/30/21

7,500

7,425

7,418

3.28

(1.25% Floor)

Oil & Gas Drilling

ProPetro Services, Inc.

First Lien Secured Term
Loan

L+6.25%

7.25%

9/30/19

10,000

9,900

10,100

4.47

(1.00% Floor)

Specialized
Consumer Services

Pre-Paid Legal Services,
Inc.

Second Lien Secured Term
Loan

L+8.50%

9.75%

7/1/20

17,000

16,771

16,949

7.50

(1.25% Floor)

Specialized Finance

GMT Holdings 1, Ltd. &
GMT Holdings 12, Ltd.(3)

First Lien Secured Term
Loan

N/A(4)

25.00%

6/30/14

26,653

26,718

24,201

10.71

Trading Companies &
Distributors

Distribution International,
Inc.

First
Lien Secured Term Loan

P+5.50%

8.75%

7/16/19

9,975

9,877

9,865

4.37

(3.25% Floor)

Total
Investments(5)

$

219,529

$

217,004

$

214,669

94.99

%

(1)

The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR”
or “L”) or the Prime Rate (“P”), which resets monthly, quarterly or semiannually.

(2)

The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the payment-in-kind,
or “PIK”, interest rate, as the case may be.

WhiteHorse Finance, Inc. (“WhiteHorse Finance” and,
together with its subsidiaries, the “Company”) is an externally managed, non-diversified, closed-end management investment
company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the
“1940 Act”). In addition, for tax purposes, WhiteHorse Finance elected to be treated as a regulated investment company
(“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

WhiteHorse Finance, LLC was organized as a limited liability
company under the laws of Delaware on December 28, 2011 and commenced operations effective January 1, 2012. At the commencement
of operations and up to the completion of its initial public offering (the “IPO”), H.I.G. Bayside Debt & LBO
Fund II, L.P. (“Bayside II”) and H.I.G. Bayside Loan Opportunity Fund II, L.P. (“Loan Fund II” and, together
with Bayside II, the “Bayside Loan Funds”) owned 55.1% and 44.9% of the Company, respectively. On December 4,
2012, WhiteHorse Finance, LLC converted from a Delaware limited liability company to a Delaware corporation, leaving WhiteHorse
Finance, Inc. as the surviving entity (the “BDC Conversion”). As a result of the BDC Conversion, the Bayside Loan Funds
received 7,826,284 shares of common stock in WhiteHorse Finance, Inc.

On December 4, 2012, WhiteHorse Finance priced its IPO,
selling 6,666,667 shares at a public offering price of $15.00 per share. Concurrent with the IPO, the Company’s directors,
officers, the managers of its investment adviser and their immediate family members or entities owned by, or family trusts for
the benefit of, such persons, purchased an additional 472,673 shares through a private placement transaction exempt from registration
under the Securities Act of 1933, as amended (the “Securities Act”), at $15.00 per share.

The Company’s investment objective is to generate attractive
risk-adjusted returns primarily by originating and investing in senior secured loans, including first lien and second lien facilities,
to performing small-cap companies across a broad range of industries that typically carry a floating interest rate based on the
London Interbank Offered Rate (“LIBOR”). It may also opportunistically make investments at other levels of a company’s
capital structure, including mezzanine loans or equity interests and may receive warrants to purchase common stock in connection
with its debt investments.

WhiteHorse Finance’s investment activities are managed
by H.I.G. WhiteHorse Advisers, LLC (“WhiteHorse Advisers”), an affiliate of the Bayside Loan Funds. Prior to December 4,
2012, Bayside Capital, Inc., also an affiliate of the Bayside Loan Funds, served as the investment adviser through an interim advisory
agreement. H.I.G. WhiteHorse Administration, LLC (“WhiteHorse Administration”), an affiliate of the Bayside Loan Funds,
provides administrative services necessary for the Company to operate.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation : The accompanying consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) and include WhiteHorse Finance, Inc., its wholly owned subsidiary, WhiteHorse Finance Warehouse, LLC, and
its subsidiary, Bayside Financing S.A.R.L. All significant intercompany balances and transactions and have been eliminated. Additionally,
the accompanying consolidated financial statements and related financial information have been prepared pursuant to the requirements
for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements
prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited consolidated financial results included
herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation
of financial statements for the interim periods included herein. This Form 10-Q should be read in conjunction with the Company’s
annual report on Form 10-K for the year ended December 31, 2012. The current period’s results of operations will not necessarily
be indicative of results that ultimately may be achieved for the year ending December 31, 2013.

10

Use of Estimates : The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements. Actual results
could differ from those estimates.

Fair Value of Financial Instruments : The Company determines
the fair value of its financial instruments in accordance with Accounting Standards Codification (“ASC”) Topic 820
— Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value, establishes a framework used to measure
fair value and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized
its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value
hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial
instrument. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect
those that management believes market participants would use in pricing the financial instrument at the measurement date.

Investments are measured at fair value as determined in good
faith by the Company’s investment committee, generally on a quarterly basis, reviewed by the audit committee of the board
of directors and ultimately approved by the board of directors, based on, among other factors, consistently applied valuation procedures
on each measurement date. Any changes to the valuation methodology are reviewed by management and the Company’s board of
directors to confirm that the changes are justified. The Company continues to review and refine its valuation procedures in response
to market changes.

The Company engages an independent external valuation firm to
periodically review material investments. This external review is used by the investment committee to review the Company’s
internal valuation of each investment over the year.

Investment Transactions : The Company records investment
transactions on a trade date basis. These transactions may settle subsequent to the trade date depending on the transaction type.
Certain expenses related to legal and tax consultation, due diligence, rating fees, valuation expenses and independent collateral
appraisals may arise when the Company makes certain investments. These expenses are recognized in the statement of operations as
they are incurred.

Sales : Realized gains or losses on the sales of investments
are calculated by using the specific identification method.

Interest Income : Interest income, adjusted for amortization
of premium and accretion of discount, is recorded on an accrual basis. The Company may also receive closing, commitment, prepayment,
amendment and other fees from portfolio companies in the ordinary course of business. Closing fees associated with investments
in portfolio companies are accreted into interest income over the respective terms of the applicable loans using the effective
interest method. Upon the prepayment of a loan or debt security, any unamortized loan closing fees are recorded as part of interest
income. Commitment fees are based upon the undrawn portion committed by the Company and are recorded as interest income on an accrual
basis. Prepayment, amendment and other fees are recognized when earned, generally when such fees are receivable. Any such fees
are included in interest income on the statement of operations. The Company may invest in loans that contain a payment-in-kind
(“PIK”) interest rate provision. PIK interest is accrued at the contractual rates and added to loan principal on the
reset dates.

Non-accrual : Loans are placed on non-accrual status
when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will
be collected. The Company may conclude that non-accrual status is not required if the loan has sufficient collateral value and
is in the process of collection. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments
received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual
loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely
to remain current. As of September 30, 2013 and December 31, 2012, the Company had no loans on non-accrual status.

Cash and Cash Equivalents : Cash and cash equivalents
include cash, deposits with financial institutions, and short-term liquid investments in money market funds with original maturities
of three months or less.

11

Restricted Cash and Cash Equivalents :
Restricted cash and cash equivalents include amounts that are collected and held by the trustee appointed as custodian of the
assets securing the Company’s credit facility. Restricted cash is held by the trustee for the payment of interest
expense and principal on the outstanding borrowings or reinvestment into new assets. Restricted cash that represents interest
or fee income is transferred to unrestricted cash accounts by the trustee once a quarter after the payment of operating
expenses and amounts due under the Credit Facility (as defined below).

Organizational and Offering Costs : The Company incurred
legal, accounting, regulatory, investment banking and other costs during its initial start up phase and associated with its IPO.
Organizational costs are expensed as incurred. Offering costs were deferred and charged against paid-in capital in excess of par
on completion of the IPO.

Deferred Financing Costs : Deferred financing costs represent
fees and other direct incremental costs incurred in connection with the Company’s borrowings. These amounts are amortized
using the effective interest method and are included in interest expense in the consolidated statements of operations over the
estimated life of the borrowings.

Income Taxes : Prior to the BDC Conversion on December 4,
2012, the Company was treated as a partnership for U.S. federal and state income tax purposes and did not incur income taxes. Accordingly,
no provision for income taxes has been made in the accompanying financial statements, as each member is individually responsible
for reporting income or loss, to the extent required by U.S. federal income tax laws and regulations, based upon its respective
share of the Company’s revenues and expenses as reported for income tax purposes.

Subsequent to the BDC Conversion, the Company elected
to be treated as a RIC under Subchapter M of the Code. In order to maintain its status as a RIC, among other requirements,
the Company is required to distribute at least 90% of ordinary income and realized net short-term capital gains in excess of
realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, the Company
is generally required to pay a nondeductible excise tax equal to 4% of the amount by which (1) 98% of ordinary income
for the calendar year, (2) 98.2% of capital gains in excess of capital losses for the one-year period ending on
October 31 of the calendar year and (3) any ordinary income and net capital gains for preceding years that were not
distributed during such years and on which the Company paid no U.S. federal income tax exceed distributions for the year. The
Company accrues estimated excise tax on the amount, if any, that estimated taxable income is expected to exceed the level of
stockholder distributions described above.

12

The Company’s tax returns are subject to examination by
federal, state and local taxing authorities. Because many types of transactions are susceptible to varying interpretations under
U.S. federal and state income tax laws and regulations, the amounts reported in the accompanying consolidated financial statements
may be subject to change at a later date by the respective taxing authorities.

The Company recognizes the financial statement benefit of a
tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an
audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statement is the largest
benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

Penalties or interest that may be assessed related to any income
taxes would be classified as other operating expenses in the financial statement. The Company had no amounts accrued for interest
or penalties on September 30, 2013. The Company does not expect the total amount of unrecognized tax benefits to significantly
change in the next twelve months.

Dividends and Distributions : Dividends and distributions
to common stockholders are recorded on the ex-dividend date. Quarterly distribution payments are determined by the board of directors
and are paid from taxable earnings estimated by management and may include a return of capital and/or capital gains. Net realized
capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment.

The Company maintains an “opt out” dividend reinvestment
plan for common stockholders. As a result, if the Company declares a dividend or other distribution, stockholders’ cash distributions
will be automatically reinvested in additional shares of common stock, unless they specifically “opt out” of the dividend
reinvestment plan so as to receive cash distributions.

Earnings per Share : The Company calculates earnings
per share as earnings available to stockholders divided by the weighted average number of shares outstanding during the period.
Prior to December 4, 2012, the Company did not have common stock outstanding and therefore earnings per share and weighted
average shares outstanding information for periods that include financial results prior to December 4, 2012 are not meaningful.

Risks and Uncertainties : In the normal course of business,
the Company encounters primarily two significant types of economic risks: credit and market. Credit risk is the risk of default
on the Company’s investments that result from an issuer’s, borrower’s or derivative counterparty’s inability
or unwillingness to make contractually required payments. Market risk reflects changes in the value of investments due to changes
in interest rates, spreads or other market factors, including the value of the collateral underlying investments held by the Company.
Management believes that the carrying value of its investments are fairly stated, taking into consideration these risks along with
estimated collateral values, payment histories and other market information.

Newly Adopted Accounting Standards : As permitted by
Section 7(a)(2)(B) of the Securities Act, the Company has elected to defer the adoption of new and revised accounting standards
applicable to public companies until they are also applicable to private companies. There are currently no such standards being
deferred that will, in management’s opinion, have a material impact on the consolidated financial statements.

NOTE 3 – FAIR VALUE MEASUREMENTS

Accounting standards establish a fair value hierarchy which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical
assets or liabilities in active public markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs
other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs
that reflect a reporting entity’s own assumptions about what market participants would use in pricing an asset or liability.

13

In certain cases, the inputs used to measure fair value may
fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s categorization within the
fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s
assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers
factors specific to the financial instrument.

Fair value for each investment is derived using a combination
of valuation methodologies that, in the judgment of the investment committee of the Company’s investment adviser are most
relevant to such investment, including, without limitation, being based on one or more of the following: (i) market prices
obtained from market makers for which the investment committee has deemed there to be enough breadth (number of quotes) and depth
(firm bids) to be indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received
in an arms’-length transaction, (iii) a discounted cash flow analysis, (iv) the guideline public company method,
(v) the similar transaction method or (vi) the option pricing method.

The following table presents investments (as shown on the schedule
of investments) that have been measured at fair value as of September 30, 2013:

Level 1

Level 2

Level 3

Total

First lien secured loans

—

—

$

143,437

$

143,437

Second lien secured loans

—

—

71,232

71,232

Total investments

—

—

$

214,669

$

214,669

The following table presents investments (as shown on the schedule
of investments) that have been measured at fair value as of December 31, 2012:

Level 1

Level 2

Level 3

Total

First lien secured loans

—

—

$

145,626

$

145,626

Second lien secured loans

—

—

34,862

34,862

Total investments

—

—

$

180,488

$

180,488

The portfolio companies underlying the investments are located
in the United States. As of September 30, 2013 and December 31, 2012, the weighted average remaining term of the Company’s
debt investments was approximately 3.6 years and 2.5 years, respectively.

The following table presents the changes in investments measures
at fair value using Level 3 inputs for the nine months ended September 30, 2013:

First Lien Secured Loans

Second Lien Secured Loans

Senior Unsecured Note

Total Investments

Balance at January 1, 2013

$

145,626

$

34,862

$

—

$

180,488

Funding of investments

103,373

44,904

—

148,277

Non-cash interest income

282

308

—

590

Amortization of discount

635

185

—

820

Proceeds from pay downs

(104,131

)

(8,929

)

—

(113,060

)

Net unrealized (depreciation) appreciation

(2,348

)

(98

)

—

(2,446

)

Balance at September 30, 2013

$

143,437

$

71,232

$

—

$

214,669

The following table presents the changes in investments measures
at fair value using Level 3 inputs for the nine months ended September 30, 2012:

First Lien Secured Loans

Second Lien Secured Loans

Senior Unsecured Note

Total Investments

Balance at January 1, 2012

$

—

$

—

$

—

$

—

Contributed investments

223,505

76,101

8,580

308,186

Funding of investments

49,456

4,060

5,141

58,657

Non-cash interest income

4,634

307

—

4,941

Amortization of discount

922

708

153

1,783

Proceeds from pay downs

(15,682

)

—

—

(15,682

)

Distributed investments

(72,088

)

—

—

(72,088

)

Net realized losses on investments

(2,265

)

—

—

(2,265

)

Net unrealized (depreciation) appreciation

2,752

3,397

(774

)

5,375

Balance at September 30, 2012

$

191,234

$

84,573

$

13,100

$

288,907

14

The significant unobservable inputs used in the fair value measurement
of the Company’s investments are the discount rate, market quotes and arms’ length transaction price. Significant increase
in the discount rate for an investment would result in a significantly lower fair value measurement. Significant increase in the
market quotes price would result in a significant increase in the fair value measurement.

Valuation of investments may be determined by weighting various
valuation techniques. Significant judgment is required in selecting the assumptions used to determine the fair values of these
investments. At September 30, 2013 and December 31, 2012, five and three Level 3 first lien secured loans, respectively, were valued
using a discounted cash flow technique, four and three, respectively, were valued by applying a weighted approach across several
techniques and one and zero, respectively, were valued using market quotations. At September 30, 2013 and December 31, 2012, two
and one Level 3 second lien secured loans, respectively, were valued using a discounted cash flow technique and the remaining five
and one, respectively, were valued by applying a weighted approach across several techniques.

The valuation methods selected for a particular investment are
based on the circumstances and on the sufficiency of data available to measure fair value. If more than one valuation method is
used to measure fair value, the results are evaluated and weighted, as appropriate, considering the reasonableness of the range
indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in
the circumstances.

The availability of observable inputs can vary depending on
the financial instrument and is affected by a wide variety of factors, including, for example, the nature of the instrument, whether
the instrument is traded on an active exchange or in the secondary market and the current market conditions. To the extent that
the valuation is based on models or inputs that are less observable or unobservable in the market the determination of fair value
requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for
financial instruments classified as Level 3.

The determination of fair value using the selected methodologies
takes into consideration a range of factors including, but not limited to, the price at which the investment was acquired, the
nature of the investment, local market conditions, trading values on public and private exchanges for comparable securities, current
and projected operating performance and financing transactions subsequent to the acquisition of the investment, compliance with
agreed upon terms and covenants, and assessment of credit ratings of an underlying borrower. These valuation methodologies involve
a significant degree of judgment to be exercised.

15

As it relates to investments which do not have an active public
market, there is no single standard for determining the estimated fair value. Valuations of privately held investments are inherently
uncertain, and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value may
differ materially from the values that would have been used if a ready market for these investments existed.

In some cases, fair value for such investments is best expressed
as a range of values derived utilizing different methodologies from which a single estimate may then be determined. Consequently,
fair value for each investment may be derived using a combination of valuation methodologies that, in the judgment of the investment
professionals, are most relevant to such investment. The selected valuation methodologies for a particular investment are consistently
applied on each measurement date. However, a change in a valuation methodology or its application from one measurement date to
another is possible if the change results in a measurement that is equally or more representative of fair value in the circumstances.

NOTE 4 – BORROWINGS

In accordance with the 1940 Act, with certain limited exceptions,
the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after
such borrowing. As of September 30, 2013, the Company’s asset coverage for borrowed amounts was 365.9%.

Credit Facility : On September 27, 2012, the Company
entered into a $150,000 revolving credit and security agreement with Natixis, New York Branch, acting as facility agent (the “Credit
Facility”) and on the same date drew $51,250. In connection with this agreement, WhiteHorse Finance Warehouse, LLC pledged
securities with a fair value of $183,050 and $144,054, respectively, as of September 30, 2013 and December 31, 2012, as collateral
for the Credit Facility. The Credit Facility bears interest at the daily commercial paper rate plus 2.25% on outstanding borrowings.
The Company also incurs a commitment fee of 1.00% per annum on any undrawn balance. The Credit Facility has a final maturity
date of September 27, 2020. Under the Credit Facility, the Company has made certain customary representations and warranties,
and is required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements
for similar credit facilities. The Credit Facility includes usual and customary events of default for credit facilities of this
nature. At September 30, 2013, the Company had zero in outstanding borrowings and $150,000 undrawn under the Credit Facility. At
December 31, 2012, the Company had $51,250 in outstanding borrowings and $98,750 undrawn under the Credit Facility. The Company’s
ability to draw down undrawn funds under the Credit Facility is determined by collateral and portfolio quality requirements stipulated
in the credit and security agreement. At September 30, 2013 and December 31, 2012, $87,786 and $4,538, respectively, were available
to be drawn by the Company based on these requirements.

Unsecured Term Loan : On November 8, 2012, the Company
entered into a $90,000 unsecured term loan agreement with Citibank, N.A., as the sole lead arranger, and Loan Fund II, as guarantor.
On July 9, 2013, the Company amended the terms of its unsecured term loan to subordinate the unsecured term loan to the Notes (as
defined below). On July 19, 2013, the Company further amended the terms of its unsecured term loan to lower the annual interest
rate from LIBOR plus 2.75% to LIBOR plus 2.20%. The amendment also extended the maturity date by one year to July 3, 2015.
Under the terms of the amended unsecured term loan, with respect to which the Company pledged no collateral to the lenders, the
Company is required to pay interest monthly at the annual rate, except at its option and under certain other circumstances at one
of several other interest rates. The unsecured term loan is subject to customary covenants and events of default, such as failure
to pay the principal of, or interest on, the unsecured term loan, certain events of bankruptcy, insolvency or reorganization occur
or a payment default under certain of our other debt obligations. The unsecured term loan includes customary restrictions that
limit the Company’s ability to pay dividends under certain circumstances, to merge with another entity unless it is the surviving
entity following the merger and to amend its organizational documents. Loan Fund II has guaranteed the Company’s obligation
to make payments under the unsecured term loan. Loan Fund II, as the guarantor of the unsecured term loan, has the right to require
the lenders to assign the loan to it under certain circumstances. The Company is permitted to prepay amounts outstanding under
the unsecured term loan in whole or in part without penalty.

Senior Notes : On July 23, 2013, the Company completed
a public offering of $30.0 million of aggregate principal amount of 6.50% senior notes due 2020 (the “Notes”), the
net proceeds of which were used to reduce outstanding obligations under the Company’s unsecured term loan. Interest on the
Notes is paid quarterly on March 31, June 30, September 30 and December 31, at an annual rate of 6.50%. The Notes
mature on July 31, 2020. The Notes are the Company’s direct senior unsecured obligations, rank senior to the Company’s
unsecured term loan and are structurally subordinate to borrowings under the Credit Facility. The Notes are listed on the NASDAQ
Global Select Market under the symbol “WHFBL”.

NOTE 5 – RELATED PARTY TRANSACTIONS

Interim Investment Advisory Agreement : Prior to the
BDC Conversion, Bayside Capital, LLC, an affiliate of the Bayside Loan Funds, served as the interim investment adviser for the
Company through an interim advisory agreement (the “Interim Investment Advisory Agreement”). Under the Interim Investment
Advisory Agreement, the interim investment adviser provided investment management services to the Company prior to the completion
of its IPO. The Interim Investment Advisory Agreement waived all fees payable by the Company and, as a result, no fees were paid
or are due to Bayside Capital, LLC. The Interim Investment Advisory Agreement was terminated effective December 4, 2012,
and replaced by the investment advisory agreement described below.

16

Investment Advisory Agreement : WhiteHorse Advisers serves
as the Company’s investment adviser in accordance with the terms of an investment advisory agreement (the “Investment
Advisory Agreement”). Subject to the overall supervision of the Company’s board of directors, the investment adviser
manages the day-to-day operations of, and provides investment management services to, the Company. Under the terms of the Investment
Advisory Agreement, WhiteHorse Advisers:

•

determines the composition of the investment portfolio, the nature and timing of the changes to the portfolio and the manner
of implementing such changes;

•

identifies, evaluates and negotiates the structure of the investments the Company makes (including performing due diligence
on the Company’s prospective portfolio companies); and

•

closes, monitors and administers the investments the Company makes, including the exercise of any voting or consent rights.

In addition, WhiteHorse Advisers provides the Company with access
to personnel and an investment committee. Under the Investment Advisory Agreement, the Company pays WhiteHorse Advisers a fee for
investment management services consisting of a base management fee and an incentive fee. The Investment Advisory Agreement may
be terminated by either party without penalty upon 60 days’ written notice to the other party.

Base Management Fee

The base management fee is calculated at an annual rate of
2.0% of consolidated gross assets, including cash and cash equivalents and assets purchased with borrowed funds, and is
payable quarterly in arrears. The base management fee is calculated based on the average carrying value of the
Company’s consolidated gross assets, including cash and cash equivalents and assets purchased with borrowed funds, at
the end of the two most recently completed calendar quarters, appropriately adjusted for any share issuances or repurchases
during the quarter. The management fees for any partial month or quarter is appropriately pro-rated. The Investment Advisory
Agreement excludes cash and cash equivalents from the calculation of the base management fee for the calendar quarters
ended December 31, 2012, March 31, 2013, June 30, 2013, and September 30, 2013.

WhiteHorse Advisers has agreed to waive
that portion of the base management fee payable with respect to cash and cash equivalents and restricted cash and
cash equivalents to which it would otherwise be entitled under the Investment Advisory Agreement for the fiscal quarters
ending December 31, 2013 and

March 31, 2014.

Performance-based Incentive Fee

The performance-based incentive fee consists of two components
that are independent of each other, except as provided by the incentive fee cap and deferral mechanism discussed below.

The calculations of these two components have been structured
to include a fee limitation such that no incentive fee will be paid to the investment adviser for any quarter if, after such payment,
the cumulative incentive fees paid to the investment adviser for the period that includes the current fiscal quarter and the 11
full preceding fiscal quarters, referred to as the “Incentive Fee Look-back Period,” would exceed 20.0% of the Cumulative
Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period. Each quarterly incentive fee is subject
to the Incentive Fee Cap (as defined below) and a deferral mechanism through which the investment adviser may recap a portion of
such deferred incentive fees, which is referred to together as the “Incentive Fee Cap and Deferral Mechanism.”

The Incentive Fee Look-back Period commenced on January 1,
2013. Prior to January 1, 2016, the Incentive Fee Look-back Period will consist of fewer than 12 full fiscal quarters.

The deferral component of the Incentive Fee Cap and Deferral
Mechanism may cause incentive fees that accrued during one fiscal quarter to be paid to the investment adviser at any time during
the 11 full fiscal quarters following such initial full fiscal quarter.

17

This limitation is accomplished by subjecting each incentive
fee payable to a cap, which is referred to as the “Incentive Fee Cap.” The Incentive Fee Cap in any quarter is equal
to (a) 20.0% of Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period less
(b) cumulative incentive fees of any kind paid to the investment adviser during the Incentive Fee Look-back Period. To the
extent the Incentive Fee Cap is zero or a negative value in any quarter, the Company will pay no incentive fee to our investment
adviser in that quarter. The Company will only pay incentive fees to the extent allowed by the Incentive Fee Cap and Deferral Mechanism.
To the extent that the payment of incentive fees is limited by the Incentive Fee Cap and Deferral Mechanism, the payment of such
fees may be deferred and paid in subsequent quarters up to three years after their date of deferment, subject to applicable limitations
included in the Investment Advisory Agreement.

The “Cumulative Pre-Incentive Fee Net Return” refers
to the sum of (a) Pre-Incentive Fee Net Investment Income for each period during the Incentive Fee Look-back Period and (b) the
sum of cumulative realized capital gains, cumulative realized capital losses, cumulative unrealized capital depreciation and cumulative
unrealized capital appreciation during the applicable Incentive Fee Look-back Period.

The first component, which is income-based, is calculated and
payable quarterly in arrears, commenced with the quarter beginning January 1, 2013, based on Pre-Incentive Fee Net Investment
Income for the immediately preceding calendar quarter, subject to the Incentive Fee Cap and Deferral Mechanism. For this purpose,
“Pre-Incentive Fee Net Investment Income” means, in each case on a consolidated basis, interest income, distribution
income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment,
origination, structuring, diligence and consulting fees or other fees received from portfolio companies) accrued during the calendar
quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under
the administration agreement (the “Administration Agreement”), any interest expense and any dividends paid on any issued
and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income does not include any
realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

The operation of the first component of the incentive fee for
each quarter is as follows:

•

no incentive fee is payable to the Company’s investment adviser in any calendar quarter in which Pre-Incentive Fee Net
Investment Income does not exceed the “Hurdle Rate” of 1.75% (7.00% annualized);

•

100% of Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income,
if any, that exceeds the Hurdle Rate but is less than 2.1875% in any calendar quarter (8.75% annualized) is payable to our investment
adviser. This portion of our Pre-Incentive Fee Net Investment Income (which exceeds the Hurdle Rate but is less than 2.1875%) is
referred to as the “catch-up.” The effect of the catch-up is that, if such Pre-Incentive Fee Net Investment Income
exceeds 2.1875% in any calendar quarter, the investment adviser will receive 20% of such Pre-Incentive Fee Net Investment Income
as if the Hurdle Rate did not apply; and

•

20% of the amount of such Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1875% in any calendar quarter (8.75%
annualized) is payable to our investment adviser (once the Hurdle Rate is reached and the catch-up is achieved, 20% of all Pre-Incentive
Fee Net Investment Income).

The portion of such incentive fee that is attributable to deferred
interest (such as PIK interest or original issue discount) will be paid to the investment adviser, together with interest from
the date of deferral to the date of payment, only if and to the extent that the Company actually receives such interest in cash,
and any accrual will be reversed if and to the extent such interest is reversed in connection with any write-off or similar treatment
of the investment giving rise to any deferred interest accrual. Any reversal of such amounts would reduce net income for the quarter
by the net amount of the reversal (after taking into account the reversal of incentive fees payable) and would result in a reduction
and possibly elimination of the incentive fees for such quarter.

There is no accumulation of amounts on the Hurdle Rate from
quarter to quarter and, accordingly, there is no clawback of amounts previously paid if subsequent quarters are below the quarterly
Hurdle Rate and there is no delay of payment if prior quarters are below the quarterly Hurdle Rate. Since the Hurdle Rate is fixed,
as interest rates rise, it will be easier for the investment adviser to surpass the Hurdle Rate and receive an incentive fee based
on Pre-Incentive Fee Net Investment Income.

18

Net investment income used to calculate this component of the
incentive fee is also included in the amount of consolidated gross assets used to calculate the 2.0% base management fee. These
calculations will be appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases
during the current quarter.

The second component, the capital gains component of the incentive
fee, which is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory
Agreement, as of the termination date), commenced on January 1, 2013, and will equal 20% of cumulative aggregate realized
capital gains from January 1, 2013 through the end of the calendar year, computed net of aggregate cumulative realized capital
losses and aggregate cumulative unrealized capital depreciation through the end of the year, less the aggregate amount of any previously
paid capital gains incentive fees and subject to the Incentive Fee Cap and Deferral Mechanism. If such amount is negative, then
no capital gains incentive fee will be payable for the year. Additionally, if the Investment Advisory Agreement is terminated as
of a date that is not a calendar year end, the termination date will be treated as though it were a calendar year end for purposes
of calculating and paying the capital gains incentive fee. The capital gains component of the incentive fee is not subject to any
minimum return to stockholders.

Because of the structure of the incentive fee, it is possible
that the Company may pay an incentive fee in a quarter where it incurs a loss subject to the Incentive Fee Cap and Deferral Mechanism.
For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the Hurdle Rate, it will pay the applicable
incentive fee even after incurring a loss in that quarter due to realized and unrealized capital losses.

During the three and nine months ended September 30, 2013, the
Company incurred base management fees of $1,201 and $3,522, and performance-based incentive fees of $1,571 and $3,736, respectively.
No management fees were incurred during the three and nine months ended September 30, 2012 under the Interim Investment Advisory
Agreement.

Administration Agreement : Pursuant to the Administration
Agreement, WhiteHorse Administration furnishes the Company with office facilities, equipment and clerical, bookkeeping and record
keeping services to enable the Company to operate. WhiteHorse Administration also provides the Company with access to the resources
necessary for it to perform its obligations as collateral manager of WhiteHorse Warehouse under the Credit Facility. Under the
Administration Agreement, WhiteHorse Administration performs, or oversees the performance of, the Company’s required administrative
services, which include being responsible for the financial records which the Company is required to maintain and preparing reports
to its stockholders and reports filed with the Securities and Exchange Commission (the “SEC”). In addition, WhiteHorse
Administration assists the Company in determining and publishing its net asset value, oversees the preparation and filing of its
tax returns and the printing and dissemination of reports to its stockholders and generally oversees the payment of the Company’s
expenses and the performance of administrative and professional services rendered to the Company by others. Payments under the
Administration Agreement equal an amount based upon the Company’s allocable portion of WhiteHorse Administration’s
overhead in performing its obligations under the Administration Agreement, including rent and the Company’s allocable portion
of the cost of its chief compliance officer, chief operating officer and chief financial officer along with their respective staffs.
Under the Administration Agreement, WhiteHorse Administration also provides on the Company’s behalf managerial assistance
to those portfolio companies to which the Company is required to provide such assistance. The Administration Agreement may be terminated
by either party without penalty upon 60 days’ written notice to the other party. To the extent that WhiteHorse Administration
outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without any profit
to WhiteHorse Administration.

Substantially all the Company’s payments of operating
expenses to third parties were made by a related party, for which it received reimbursement from the Company.

The Company incurred allocated administrative expenses of $142
and $920, respectively, during the three and nine months ended September 30, 2013. No administrative expenses were incurred during
the three and nine months ended September 30, 2012.

Due To Related Parties : At September 30, 2013,
the Company owed $142 to WhiteHorse Administration in connection with allocated administrative expenses. At December 31,
2012, the Company owed interest and principal proceeds of $1 to other related parties. These amounts were included in
accounts payable and accrued expenses in the consolidated statements of assets and liabilities.

19

Co-investments with Related Parties : At September 30,
2013 and December 31, 2012, certain officers or employees affiliated with or employed by the Bayside Loan Funds and their
related entities maintained co-investments in the Company’s investments of $2,125 and $2,681, respectively.

NOTE 6 – COMMITMENT AND CONTINGENCIES

Commitments : The Company had outstanding commitments
to fund investments totaling $300 and $1,128 as of September 30, 2013 and December 31, 2012, respectively.

Indemnification : In the normal course of business, the
Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnifications.
The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made
against the Company that have not occurred. The Company expects the risk of any future obligation under these indemnifications
to be remote.

Legal proceedings : In the normal course of business,
the Company, the investment adviser and the administrator may be subject to legal and regulatory proceedings that are generally
incidental to its ongoing operations. While there can be no assurance of the ultimate disposition of any such proceedings, the
Company does not believe any such disposition will have a material adverse effect on the Company’s consolidated financial
statements.

NOTE 7 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights:

Nine months ended September
30,

2013

2012

Per share data:(1)

Net asset value, beginning of period

$

15.30

N/A

Issuance of common stock

0.01

N/A

Offering costs

—

N/A

Net investment income

1.01

N/A

Net realized and unrealized losses on investments

(0.16

)

N/A

Net increase in net assets resulting from operations

0.85

N/A

Distributions declared

(1.07

)

N/A

Net asset value, end of period

$

15.09

N/A

Total return based on market value (2)

2.62

%

N/A

Total return based on net asset value

7.42

%

16.99

%

Net assets, end of period

$

225,982

$

300,664

Per share market value at end of period

$

15.10

N/A

Shares outstanding end of period

14,977,056

N/A

Ratios/Supplemental Data:

Expenses without incentive fees

5.92

%

0.20

%

Incentive fees

2.18

%

N/A

Total expenses

8.10

%

0.20

%

Net investment income

8.85

%

15.32

%

Portfolio turnover ratio

57.22

%

10.86

%

(1)

Calculated using the average shares outstanding method.

(2)

Total return is based on the change in market price per share during the period and takes into account distributions, if any,
reinvested in accordance with the dividend reinvestment plan.

For the nine months ended September 30, 2012, the Company did
not have common shares outstanding and therefore weighted average shares outstanding information and per share data for this period
are not provided.

20

Financial highlights are calculated for each securities class
taken as a whole. An individual stockholder’s return and ratios may vary based on the timing of capital transactions. For
the nine months ended September 30, 2012, the Company incurred $96 of organization costs, which were deemed to be non-recurring.

NOTE 8 – CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
PER COMMON SHARE

The following information sets forth the computation of the
basic and diluted per share net increase in net assets resulting from operations:

Three months ended September 30, 2013

Nine months ended September 30, 2013

Net increase in net assets resulting from operations

$

6,020

$

12,695

Weighted average shares outstanding

14,976,807

14,969,393

Basic and diluted per share net increase in net assets resulting from operations

$

0.40

$

0.85

For the three and nine months ended September 30, 2012, the
Company did not have common shares outstanding and therefore weighted average shares outstanding information and per share data
for this period are not provided.

21

Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The information contained in this section
should be read in conjunction with our Consolidated Financial Statements appearing elsewhere in this quarterly report on Form 10-Q.
In this quarterly report on Form 10-Q, "we", "us", "our" and "WhiteHorse Finance" refer
to WhiteHorse Finance, Inc. and its consolidated subsidiaries.

Forward-Looking Statements

Some of the statements in this quarterly
report on Form 10-Q constitute forward-looking statements, which relate to future events or our future performance or financial
condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including
statements as to:

•

our future operating results;

•

changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial
and capital markets, which could result in changes to the value of our assets;

•

our business prospects and the prospects of our prospective portfolio companies;

•

the impact of investments that we expect to make;

•

the impact of increased competition;

•

our contractual arrangements and relationships with third parties;

•

the dependence of our future success on the general economy and its impact on the industries in which we invest;

•

the ability of our prospective portfolio companies to achieve their objectives;

•

the relative and absolute performance of our investment adviser;

•

our expected financings and investments;

•

our ability to pay dividends or make distributions;

•

the adequacy of our cash resources and working capital;

•

the timing of cash flows, if any, from the operations of our prospective portfolio companies; and

•

the impact of future acquisitions and divestitures.

We use words such as “may,”
“might,” “will,” “intends,” “should,” “could,” “can,” “would,”
“expects,” “believes,” “estimates,” “anticipates,” “predicts,” “potential,”
“plan” and similar expressions to identify forward-looking statements. Our actual results could differ materially from
those projected in the forward-looking statements for any reason, including the factors set forth in “Item 1A—Risk
Factors” in our annual report on Form 10-K and elsewhere in this quarterly report on Form 10-Q.

We have based the forward-looking statements
included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q,
and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update
any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult
any additional disclosures that we may make directly to you or through reports that we in the future may file with the U.S. Securities
and Exchange Commission, or the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K.

You should understand that under Sections
27A(b)(2)(B) and (D) of the Securities Act of 1933, as amended, and Sections 21E(b)(2)(B) and (D) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995 do not apply to forward-looking statements made in connection with this quarterly report on Form 10-Q or any
periodic reports we file under the Exchange Act.

22

Overview

We are an externally managed, non-diversified,
closed-end management investment company that has elected to be treated as a business development company under the Investment
Company Act of 1940, as amended, or the 1940 Act. In addition, for tax purposes, we elected to be treated as a regulated investment
company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended.

We were formed on December 28, 2011
and commenced operations on January 1, 2012. We were originally capitalized with approximately $176.3 million of contributed
assets from H.I.G. Bayside Debt & LBO Fund II, L.P. and H.I.G. Bayside Loan Opportunity Fund II, L.P., each of which is
an affiliate of H.I.G. Capital, L.L.C., or H.I.G. Capital. These assets were contributed as of January 1, 2012 in exchange
for 11,752,383 units in WhiteHorse Finance, LLC. On December 4, 2012, we converted from a Delaware limited liability company into
a Delaware corporation and elected to be treated as a business development company under the 1940 Act. In this quarterly report
on Form 10-Q, we refer to this conversion as the “BDC Conversion” and, where applicable, “shares” refer
to our units prior to the BDC Conversion and to shares of common stock in our corporation after the BDC Conversion. As part of
the BDC Conversion, all outstanding units in WhiteHorse Finance, LLC were converted to 7,826,284 shares of common stock of WhiteHorse
Finance, Inc.

On December 4, 2012, we priced our initial
public offering, or the IPO, selling 6,666,667 million shares at a public offering price of $15.00 per share. Concurrent with the
IPO, certain of our directors and officers, the managers of our investment adviser and their immediate family members or entities
owned by, or family trusts for the benefit of, such persons, purchased an additional 472,673 shares through a private placement,
or the Concurrent Private Placement, at $15.00 per share. Our shares are listed on the NASDAQ Global Select Market under the symbol
“WHF”.

We are a direct lender targeting debt
investments in privately held, small-cap companies located in North America. Our investment objective is to generate attractive
risk-adjusted returns primarily by originating and investing in senior secured loans, including first lien and second lien facilities,
to performing small-cap companies across a broad range of industries that typically carry a floating interest rate based on the
London Interbank Offered Rate, or LIBOR, plus a spread and have a term of three to six years. While we focus principally
on originating senior secured loans to small-cap companies, we may also opportunistically make investments at other levels of a
company’s capital structure, including mezzanine loans or equity interests, and in companies outside of the small-cap market,
to the extent we believe the investment presents an opportunity to achieve an attractive risk-adjusted return. We also may receive
warrants to purchase common stock in connection with our debt investments. We expect to generate current income through the receipt
of interest payments, as well as origination and other fees, capital appreciation and dividends.

Our investment activities are managed
by H.I.G. WhiteHorse Advisers, LLC, or WhiteHorse Advisers, and supervised by our board of directors, a majority of whom are independent
of us, WhiteHorse Advisers and its affiliates. Under an investment advisory agreement with WhiteHorse Advisers, or the Investment
Advisory Agreement, we have agreed to pay WhiteHorse Advisers an annual base management fee based on our average consolidated gross
assets as well as an incentive fee based on our investment performance. We have also entered into an administration agreement,
or the Administration Agreement, with H.I.G. WhiteHorse Administration, LLC, or WhiteHorse Administration. Under the Administration
Agreement, we have agreed to reimburse WhiteHorse Administration for our allocable portion (subject to the review and approval
of our independent directors) of overhead and other expenses incurred by WhiteHorse Administration in performing its obligations
under the Administration Agreement.

As of September 30, 2013, our investment
portfolio consisted of senior secured loans across 17 positions with an aggregate fair value of approximately $214.7 million and
a principal balance outstanding of approximately $219.5 million. As of December 31, 2012, our investment portfolio consisted
of senior secured loans across eight positions with an aggregate fair value of approximately $180.5 million and a principal balance
outstanding of approximately $181.6 million. At both dates, the majority of our portfolio comprised senior secured loans to small-cap
borrowers.

23

Revenues

We generate revenue in the form of interest
payable on the debt securities that we hold and capital gains and distributions, if any, on the portfolio company investments that
we originate or acquire. Our debt investments, whether in the form of senior secured loans or mezzanine loans, typically have
terms of three to six years and bear interest at a fixed or floating rate based on LIBOR. Interest on debt securities is generally
payable monthly or quarterly, with the amortization of principal generally being deferred for several years from the date of the
initial investment. In some cases, we also defer payments of interest for the first few years after our investment. The principal
amount of the debt securities and any accrued but unpaid interest generally become due at the maturity date. In addition, we generate
revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance and possibly
consulting fees. We capitalize loan origination fees, original issue discount and market discount, and we then amortize such amounts
as interest income. Upon the prepayment of a loan or debt security, we record any unamortized loan origination fees as interest
income. We record prepayment premiums on loans and debt securities as interest income when we receive such amounts.

fees and expenses, including travel expenses, incurred by WhiteHorse Advisers or payable to third parties in performing due
diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;

•

the costs of all future offerings of common shares and other securities, and other incurrences of debt;

•

the base management fee and any incentive fee;

•

distributions on our shares;

•

transfer agent and custody fees and expenses;

•

amounts payable to third parties relating to, or associated with, evaluating, making and disposing of investments;

•

brokerage fees and commissions;

•

registration fees;

•

listing fees;

•

taxes;

•

independent directors’ fees and expenses;

•

costs associated with our reporting and compliance obligations under the 1940 Act and applicable U.S. federal and state securities
laws;

•

the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;

•

costs of holding stockholder meetings;

•

our fidelity bond;

•

directors and officers/errors and omissions liability insurance and any other insurance premiums;

•

litigation, indemnification and other non-recurring or extraordinary expenses;

•

direct costs and expenses of administration and operation, including audit and legal costs;

24

•

fees and expenses associated with marketing efforts, including deal sourcing and marketing to financial sponsors;

•

dues, fees and charges of any trade association of which we are a member; and

•

all other expenses reasonably incurred by us or WhiteHorse Administration in connection with administering our business, including
rent and our allocable portion of the costs and expenses of our chief compliance officer, chief financial officer and chief operating
officer along with their respective staffs.

Consolidated Results of Operations

The consolidated results of operations
for the three and nine months ended September 30, 2013 are not directly comparable to the same periods ended September 30, 2012,
since such period reflects a portfolio prior to the BDC Conversion and prior to the execution of our Investment Advisory Agreement,
Administration Agreement and some of our debt agreements.

Investment Income

Investment income for the three and nine
months ended September 30, 2013 totaled approximately $11.1 million and approximately $29.0 million, respectively, and was primarily
attributable to interest and fees earned from investments in portfolio companies. This compares to investment income for the three
and nine months ended September 30, 2012 of approximately $10.2 million and approximately $28.9 million, respectively. Investment
income included fee income, primarily related to amendments and prepayments, of approximately $1.9 million and approximately $2.5
million, respectively, for the three and nine months ended September 30, 2013, and zero and approximately $0.5 million, respectively,
for the three and nine months ended September 30, 2012.

Operating Expenses

Expenses for the three and nine months
ended September 30, 2013 were approximately $4.8 million and approximately $13.9 million, respectively. This compares to expenses
for the three and nine months ended September 30, 2012 of approximately $(0.1) million and approximately $0.4 million, respectively.

Interest expense on our Credit Facility,
Senior Notes and Unsecured Term Loan (each as defined below under “Financial Condition, Liquidity and Capital Resources”)
for the three and nine months ended September 30, 2013 totaled approximately $1.4 million and approximately $4.1 million, respectively.
Base management fees and performance-based incentive fees totaled approximately $1.2 million and approximately $1.6 million, respectively,
for the three months ended September 30, 2013 and approximately $3.5 million and approximately $3.7 million, respectively, for
the nine months ended September 30, 2013. In accordance with the Investment Advisory Agreement, cash and cash equivalents were
excluded from the calculation of base management fees. Administrative fees for the three and nine months ended September 30, 2013
totaled approximately $0.1 million and approximately $0.9 million, respectively.

We did not incur any interest expense,
investment advisory fees or administrative fees during the three and nine months ended September 30, 2012, because the Investment
Advisory Agreement, Administration Agreement and some of our debt agreements were not in effect during those periods.

General and administrative expenses were
approximately $0.5 million and approximately $1.6 million, respectively, during the three and nine months ended September 30, 2013.
We incurred no organization costs for the three and nine months ended September 30, 2013. General and administrative expenses were
approximately $(0.1) million and approximately $0.3 million, respectively, during the three and nine months ended September 30,
2012. Included in general and administrative expenses for the three and nine months ended September 30, 2012, were organization
costs related to our initial start-up, which totaled zero and approximately $0.1 million, respectively.

Net Realized and Unrealized Losses on Investments

There were no realized gains
or losses for the three and nine months ended September 30, 2013. We incurred realized losses of $2.3 million for the three and
nine months ended September 30, 2012. These losses were attributable primarily to assets distributed to the members of WhiteHorse
Finance, LLC prior to the completion of the BDC Conversion.

25

For the three and nine months ended
September 30, 2013, we incurred net unrealized depreciation of approximately $0.3 million and approximately $2.4 million,
respectively, due to negative credit related adjustments which caused a decrease in fair value and the
reversal of unrealized appreciation on investments disposed of during the respective periods.

For the three and nine months ended September
30, 2012, we experienced net unrealized appreciation of approximately $3.3 million and approximately $5.4 million, respectively,
due to the accretion of discounts, positive credit related adjustments which caused an increase in fair value and the reversal
of unrealized depreciation on investments disposed of during the respective periods.

Financial Condition, Liquidity and Capital Resources

As a business development company, we
distribute substantially all of our net income to our stockholders. We generate cash primarily from offerings of securities, the
Credit Facility and cash flows from operations, including interest earned from the temporary investment of cash in U.S. government
securities and other high-quality debt investments that mature in one year or less. We expect to fund a portion of our investments
through future borrowings under the Credit Facility. In the future, we may obtain borrowings under other credit facilities and
issuances of senior securities. We may also borrow funds to the extent we determine that additional capital would allow us to take
advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing
opportunities or if our board of directors determines that leveraging our portfolio would be in our best interest and the best
interests of our stockholders.

Restricted cash and cash
equivalents include amounts that are collected and held by the trustee appointed as custodian of the assets securing the
Credit Facility. Restricted cash is held by the trustee for the payment of interest expense and principal on the outstanding
borrowings or reinvestment into new assets. Restricted cash that represents interest or fee income is transferred to
unrestricted cash accounts by the trustee once a quarter after the payment of operating expenses and amounts due under the
Credit Facility.

Our operating activities used cash and
cash equivalents of approximately $24.3 million during the nine months ended September 30, 2013, primarily for the net acquisitions
of investments. Our financing activities used cash and cash equivalents of approximately $69.6 million during the nine months ended
September 30, 2013, primarily for the repayment of borrowings under the Credit Facility and the payment of distributions to stockholders.

Our operating activities used cash and
cash equivalents of approximately $27.2 million during the nine months ended September 30, 2012, primarily for the net acquisitions
of investments. Our financing activities provided cash and cash equivalents of approximately $80.7 million during the nine months
ended September 30, 2012, being primarily the proceeds of capital contributions from members (prior to the BDC Conversion) and
borrowings under the Credit Facility.

As of September 30, 2013, we had
cash and cash equivalents resources of approximately $132.4 million, including approximately $70.1 million of restricted
cash. As of the same date, we had approximately $150.0 million undrawn under the Credit Facility, of which
approximately $87.8 million was available to be drawn based on the collateral and portfolio quality requirements stipulated
in the related credit and security agreement.

As of December 31, 2012, we had
cash and cash equivalents resources of approximately $187.8 million, including approximately $31.6 million of restricted
cash. As of the same date, we had approximately $98.7 million undrawn under the Credit Facility, of which approximately $4.5
million was available to be drawn based on the collateral and portfolio quality requirements stipulated in the related credit
and security agreement.

We monitor and, to the extent practicable,
intend to maintain a leverage ratio that is consistent with the leverage ratio maintained by other listed business development
companies.

26

Credit Facility

On September 27, 2012, our wholly
owned subsidiary, WhiteHorse Finance Warehouse LLC, or WhiteHorse Warehouse, entered into a $150 million secured revolving credit
facility, or the Credit Facility, with an asset-backed commercial paper conduit, for which Natixis, New York Branch, provides liquidity
support, to finance the business of WhiteHorse Warehouse in acquiring, managing and financing loans consistent with our investment
strategy. On September 27, 2012, WhiteHorse Warehouse drew approximately $51.3 million under that facility. As of September
30, 2013 and December 31, 2012, we had zero and approximately $51.3 million, respectively, in outstanding borrowings under the
Credit Facility and, based on the collateral and portfolio requirements stipulated in the Credit Facility agreement, approximately
$87.8 million and approximately $4.5 million, respectively, were available to be drawn on such dates. The Credit Facility is secured
by all of the assets of WhiteHorse Warehouse, which included 18 loans with a fair value of approximately $183.1 million as of September
30, 2013, and seven loans with a fair value of approximately $144.1 million as of December 31, 2012.

The Credit Facility includes customary
events of default for credit facilities of this nature, including breaches of representations, warranties or covenants by WhiteHorse
Warehouse or by us, insolvency events affecting WhiteHorse Warehouse or us, the occurrence of a change in control, failure to maintain
certain overcollateralization ratios required under the Credit Facility, if we or an approved affiliate or successor collateral
manager cease to act as collateral manager, if we or one of our executive officers commits fraud or is indicted for a felony with
respect to the Credit Facility or if we, one of our investment advisory affiliates or any of their respective executive officers
commits fraud or is indicted for a felony in the performance of similar investment advisory services for others.

All amounts outstanding under the
Credit Facility are scheduled to mature on September 27, 2020. Other than as described below in this paragraph, each
loan made under the Credit Facility bears interest at an applicable commercial paper rate plus 2.25% (if the lender is a
commercial conduit which has funded the loan through the issuance of commercial paper) or at LIBOR plus 2.75% (if the lender
is not a commercial paper conduit or has not otherwise funded the loan through the issuance of commercial paper). We also
incur a commitment fee of 1.00% per annum on any undrawn balance. Our ability to draw under the Credit Facility is
scheduled to terminate 24 months after the closing date of the Credit Facility. At the expiration of the reinvestment period
on September 27, 2014, the interest rate on borrowings under the Credit Facility will increase by 0.50%. Following
an event of default, the interest rate applicable on obligations under the Credit Facility that are not paid when due
will increase by 2.00% per annum. If the commercial paper rate or LIBOR cannot be determined or it is illegal for a
lender to charge such rate, then the interest rate applicable under the Credit Facility will be a base rate equal to the
highest of the prime rate as announced in The Wall Street Journal, the federal funds rate plus 0.50% or a specified LIBOR, in
each case as defined in the Credit Facility.

If we fail to perform our obligations under
the Credit Facility or the related loan sale agreement and collateral management agreement, an event of default may occur under
the Credit Facility, which could cause the Lender to accelerate all of the outstanding debt and other obligations under the Credit
Facility or to exercise other remedies under the Credit Facility. Any such developments could have a material adverse effect on
our financial conditions and results of operations.

If any of our contractual obligations
discussed above is terminated, our costs under new agreements that we enter into may increase. In addition, we will likely incur
significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment
Advisory Agreement and our Administration Agreement. Any new investment management agreement would also be subject to approval
by our stockholders.

Senior Notes

On July 23, 2013, we completed a public
offering of $30.0 million of aggregate principal amount of 6.50% senior notes due 2020, or the Notes, the net proceeds of which
were used to reduce outstanding obligations under our unsecured term loan. Interest on the Notes is paid quarterly on March 31, June
30, September 30 and December 31, at an annual rate of 6.50%. The Notes mature on July 31, 2020. The Notes are our direct
senior unsecured obligations, rank senior to our unsecured term loan and are structurally subordinate to borrowings under the Credit
Facility. The Notes are listed on the NASDAQ Global Select Market under the symbol “WHFBL”.

27

Unsecured Term Loan

On November 8, 2012, we entered into
an unsecured term loan agreement with Citibank, N.A., as the sole lead arranger, and H.I.G. Bayside Loan Opportunity Fund II, L.P.,
or Loan Fund II, as guarantor. On July 9, 2013, we amended the terms of the unsecured term loan to subordinate the unsecured term
loan to the Notes. On July 19, 2013, we further amended the terms of our unsecured term loan to lower the annual interest rate
from LIBOR plus 2.75% to LIBOR plus 2.20%. The amendment also extended the maturity date by one year to July 3, 2015. In this quarterly
report on Form 10-Q, we refer to this unsecured term loan and the term loan agreement governing its terms, together, as amended,
as the Unsecured Term Loan. Under the terms of the Unsecured Term Loan, with respect to which we pledged no collateral to the lenders,
we are required to pay interest monthly at the annual rate, except at our option and under certain other circumstances at one of
several other interest rates. The Unsecured Term Loan is subject to customary covenants and events of default, such as failure
to pay the principal of, or interest on, the Unsecured Term Loan, certain events of bankruptcy, insolvency or reorganization occur
or a payment default under certain of our other debt obligations. The Unsecured Term Loan includes customary restrictions that
limit our ability to pay dividends under certain circumstances, to merge with another entity unless we are the surviving entity
following the merger and to amend our organizational documents. Loan Fund II has guaranteed our obligation to make payments under
the Unsecured Term Loan. Loan Fund II, as the guarantor of the Unsecured Term Loan, has the right to require the lenders to assign
the loan to it under certain circumstances. We are permitted to prepay amounts outstanding under the Unsecured Term Loan in whole
or in part without penalty.

Distributions

During the three and nine months ended
September 30, 2013, we declared distributions of $0.355 and $1.065 per share, respectively, for total distributions of $5.3 million
and $15.9 million, respectively. For the three and nine months ended September 30, 2012, the Company did not have common shares
outstanding and therefore distribution information for this period is not provided. We monitor available net investment income
to determine if a return of capital for taxation purposes may occur for the fiscal year.

To the extent our taxable earnings fall
below the total amount of our distributions for any given fiscal year, a portion of those distributions may be deemed to be a return
of capital to our common stockholders. During the three and nine months ended September 30, 2013, distributions to stockholders
did not include a return of capital for tax purposes, based on current earnings for the fiscal year ending December 31, 2013. The
specific tax characteristics of the distribution will be reported to stockholders on Form 1099-DIV after the end of the calendar
year 2013 and in our periodic reports with the SEC. Stockholders should read any written disclosure accompanying a distribution
payment carefully and should not assume that the source of any distribution is our ordinary income or gains.

Portfolio Investments and Yield

As of September 30, 2013, our investment
portfolio consisted of senior secured loans across 17 positions with an aggregate fair value of approximately $214.7 million and
a principal balance outstanding of approximately $219.5 million. As of that date, the majority of our portfolio was comprised of
senior secured loans to small-cap borrowers and consisted of approximately 83.7% variable-rate investments (indexed to LIBOR),
which we believe positions our portfolio well for a potential rising interest rate environment. As of September 30, 2013, our portfolio
had an average investment size of approximately $12.6 million, with investment sizes ranging from $1.0 million to $27.3 million
and a weighted average cash yield of 12.2%.

As of December 31, 2012, our investment
portfolio consisted of senior secured loans across eight positions with an aggregate fair value of approximately $180.5 million
and a principal balance outstanding of approximately $181.6 million. As of that date, the majority of our portfolio was comprised
of senior secured loans to small-cap borrowers and consisted of 73.1% variable-rate investments (indexed to LIBOR). As of December 31,
2012, our portfolio had an average investment size of $22.7 million, with investment sizes ranging from $7.9 million to $60.9 million
and a weighted average cash yield of 14.2%.

For the three months ended
September 30, 2013, WhiteHorse Finance invested approximately $31.0 million in new and existing portfolio companies, offset
by net repayments of approximately $54.4 million. Net repayments consisted of gross repayments of approximately $98.3 million, less approximately $43.9
million redeployed in new facilities at some of those same companies through refinancing activity. Gross repayments included
approximately $25.4 million related to those refinancings, approximately $6.5 million of scheduled repayments and approximately $66.4 million of unscheduled repayments.
On a gross basis, ignoring the impact of refinancings, WhiteHorse Finance invested approximately $74.8 million across nine companies.

For the nine months ended
September 30, 2013, WhiteHorse Finance invested approximately $104.4 million in new and existing portfolio companies, offset by
net repayments of approximately $69.2 million. Net repayments consisted of gross repayments of approximately $113.1 million, less approximately $43.9 million
redeployed in new facilities at some of those same companies through refinancing activity. Gross repayments included approximately $25.4
million related to those refinancings, approximately $12.3 million of scheduled repayments and approximately $75.4 million of unscheduled repayments. On
a gross basis, ignoring the impact of refinancings, WhiteHorse Finance invested approximately $148.3 million in 14 companies.

On June 28, 2013, we amended our agreement
with GMT Global, extending the maturity date of the loan by one year to June 30, 2014 and receiving additional security enhancements.
The annual interest rate on our loan to GMT Global remains unchanged at 25.0%.

On September 16, 2013, Acella Pharmaceuticals,
LLC repaid in full our investment in the first lien secured term loan due December 30, 2015. In connection with this repayment,
we received approximately $59.7 million in principal and a 3% pre-payment fee.

We actively monitor and manage our portfolio
with regard to individual company performance as well as general market conditions. Investment decisions on new originations generally
include an analysis of the impact of the new loan on our broader portfolio, including a “top-down” assessment of portfolio
diversification and risk exposure. This assessment includes a review of portfolio concentration by issuer, industry, geography
and type of credit as well as an evaluation of our portfolio’s exposure to macroeconomic factors and cyclical trends.

We believe that consistent, active monitoring
of individual companies and the broader market is integral to portfolio management and a critical component of our investment process.
Our investment adviser uses several methods to evaluate and monitor the performance and fair value of our investments, which may
include the following:

28

•

frequent discussions with management and sponsors, including board observation rights where possible;

•

comparing/analyzing financial performance to the portfolio company’s business plan, as well as our internal projections
developed at underwriting;

•

tracking portfolio company compliance with covenants as well as other metrics identified at initial investment stage, such
as acquisitions, divestitures, product development and specified management hires; and

•

periodic review by the investment committee of each asset in the portfolio and more rigorous monitoring of “watch list”
positions.

29

As part of the monitoring process, our
investment adviser regularly assesses the risk profile of each of our investments and, on a quarterly basis, grades each investment
on a risk scale of 1 to 5. This risk rating system is intended to identify and assess risks relative to when we initially made
the investment and could be impacted by such factors as company-specific performance, changes in collateral, changes in potential
exit opportunities or macroeconomic conditions.

All investments are initially assigned
a rating of 2, as this grade represents a company that is meeting initial expectations with regard to performance and outlook.
A rating may be improved to a 1 if, in the opinion of our investment adviser, a portfolio company’s risk of loss has been
reduced relative to initial expectations. An investment will be assigned a rating of 3 if the risk of loss has increased relative
to initial expectations and will be assigned a rating of 4 if our investment principal is at a material risk of not being fully
repaid. A rating of 5 indicates an investment is in payment default and has significant risk of not receiving full repayment.

The following table shows the distribution
of our investments on the 1 to 5 investment performance rating scale at fair value as of September 30, 2013 and December 31,
2012:

September 30, 2013

December 31, 2012

Investment Performance Rating

Investments at Fair Value (Dollars in Millions)

Percentage of Total Portfolio

Investments at Fair Value (Dollars in Millions)

Percentage of Total Portfolio

1

$

—

0.0

%

$

—

0.0

%

2

171.9

80.1

180.5

100.0

3

42.8

19.9

—

0.0

4

—

0.0

—

0.0

5

—

0.0

—

0.0

Total Portfolio

$

214.7

100.0

%

$

180.5

100.0

%

Off-Balance Sheet Arrangements

We may become a party to financial instruments
with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These
instruments may include commitments to extend credit and involve, elements of liquidity and credit risk in excess of the amount
recognized on the statements of assets and liabilities. During the three and nine months ended September 30, 2013, we funded commitments
of zero and approximately $1.1 million, respectively, that were outstanding as of December 31, 2012. As of September 30, 2013,
we had commitments to fund approximately $0.3 million of revolving lines of credit.

30

Distributions

In order to maintain our status as a
RIC and to avoid corporate-level tax on income, we must distribute to our stockholders at least 90% of our ordinary income
and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets
legally available for distribution. In order to avoid certain excise taxes imposed on RICs, we must distribute during each
calendar year an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year,
(2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the
calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during
such years on which we paid no U.S. federal income tax.

During the three and nine months ended
September 30, 2013, we declared to stockholders distributions of $0.355 per share and $1.065 per share for total distributions
of $5.3 million and $15.9 million, respectively. The timing and amount of our quarterly distributions, if any, are determined by
our board of directors.

While we intend to make distributions
on a quarterly basis to our stockholders out of assets legally available for distribution, we may not be able to achieve operating
results that will allow us to make distributions at a specific level or to increase the amount of our distributions from time to
time. In addition, we may be limited in our ability to make distributions due to the asset coverage requirements applicable to
us as a business development company under the 1940 Act. If we do not distribute a certain percentage of our income annually, we
will suffer adverse tax consequences, including the possible loss of our status as a RIC. We cannot assure stockholders
that they will receive any distributions.

To the extent our taxable earnings fall
below the total amount of our distributions for that fiscal year, a portion of those distributions may be deemed a return of capital
to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original
capital invested by the stockholder rather than our income or gains. During the three and nine months ended September 30, 2013,
distributions to stockholders did not include a return of capital for tax purposes, based on current earnings for the fiscal year
ending December 31, 2013. Stockholders should read any written disclosure accompanying a distribution payment carefully and should
not assume that the source of any distribution is our ordinary income or gains.

We have adopted an “opt out”
dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash
distributions will be automatically reinvested in additional shares of our common stock unless a stockholder specifically “opts
out” of our dividend reinvestment plan. If a stockholder opts out, that stockholder receives cash distributions. Although
distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local
taxes in the same manner as cash distributions, stockholders participating in our dividend reinvestment plan will not receive any
corresponding cash distributions with which to pay any such applicable taxes.

Contractual Obligations

A summary of our significant contractual
payment obligations as of September 30, 2013 is as follows:

Payments Due by Period (Dollars in millions)

Total

Less Than 1 Year

1 – 3 Years

3 – 5 Years

More Than 5 Years

Senior notes

$

30.0

$

—

$

—

$

—

$

30.0

Unsecured term loan

55.0

—

55.0

—

—

Total contractual obligations

$

85.0

$

—

$

55.0

$

—

$

30.0

As of September 30, 2013, we had approximately
$150.0 million of unused borrowing capacity under the Credit Facility, of which approximately $87.8 million was available to be
drawn.

We entered into the Investment Advisory
Agreement with WhiteHorse Advisers in accordance with the 1940 Act. The Investment Advisory Agreement became effective upon the
pricing of the IPO. Under the Investment Advisory Agreement, WhiteHorse Advisers manages our day-to-day investment operations and
provides us with access to personnel and an investment committee and certain other resources so that we may fulfill our obligation
to act as collateral manager of WhiteHorse Warehouse under the Credit Facility. Payments under the Investment Advisory Agreement
in future periods will equal the sum of (1) a management fee equal to 2% of the value of our consolidated gross assets and
(2) an incentive fee based on our performance. See “Investment Management Agreement” in Note 5 to the consolidated
financial statements.

31

We also entered into the Administration
Agreement with WhiteHorse Administration on December 4, 2012. Pursuant to the Administration Agreement, WhiteHorse Administration
furnishes us with office facilities and administrative services necessary to conduct our day-to-day operations. WhiteHorse Administration
also furnishes us with the resources necessary for us to act as collateral manager to WhiteHorse Warehouse under the Credit Facility.
If requested to provide managerial assistance to our portfolio companies, WhiteHorse Administration will be paid an additional
amount based on the services provided, which amount will not, in any case, exceed the amount we receive from the portfolio companies
for such services. Payments under the Administration Agreement are based upon our allocable portion of WhiteHorse Administration’s
overhead expenses in performing its obligations under the Administration Agreement, including rent and our allocable portion of
the costs of our chief compliance officer, chief financial officer and chief operating officer along with their respective staffs.

Related Party Transactions

We have entered into a number of business
relationships with affiliated or related parties, including the following:

WhiteHorse Administration provides us with the office facilities and administrative services, including access to the resources
necessary for us to perform our obligations as collateral manager of WhiteHorse Warehouse under the Credit Facility, pursuant to
the Administration Agreement.

•

We have entered into a license agreement with an affiliate of H.I.G. Capital pursuant to which we have been granted a non-exclusive,
royalty-free license to use the “WhiteHorse” name.

•

Concurrent with the closing of our IPO, certain of our directors and officers, the managers of our investment adviser and their
immediate family members or entities owned by, or family trusts for the benefit of, such persons, purchased an additional 472,673
shares through the Concurrent Private Placement for proceeds to us of approximately $7 million. We received the full proceeds from
the sale of these shares, and no underwriting discounts or commissions were paid in respect of these shares.

WhiteHorse Advisers or its affiliates
may have other clients with similar, different or competing investment objectives. In serving in these multiple capacities, WhiteHorse
Advisers or its affiliates may have obligations to other clients or investors in those entities, the fulfillment of which may not
be in the best interests of us or our stockholders. As a result, WhiteHorse Advisers or its affiliates may face conflicts in the
allocation of investment opportunities among us and other investment funds or accounts advised by or affiliated with WhiteHorse
Advisers. WhiteHorse Advisers or its affiliates will seek to allocate investment opportunities among eligible accounts in a manner
that is fair and equitable over time and consistent with its allocation policy. However, we can offer no assurance that such opportunities
will be allocated to us fairly or equitably in the short-term or over time.

Critical Accounting Policies

The preparation of our financial statements
in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial
markets and any other parameters used in determining such estimates could cause actual results to differ. We have identified the
following as critical accounting policies.

32

Valuation of Portfolio Investments

We value our investments in accordance
with Accounting Standards Codification, or “ASC”, Topic 820 — Fair Value Measurements and Disclosures.
ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities
measured at fair value. ASC Topic 820’s definition of fair value focuses on exit price in the principal, or most advantageous,
market and prioritizes the use of market-based inputs over entity-specific inputs within a measurement of fair value.

Our portfolio consists primarily of debt
investments. These investments are valued at their bid quotations obtained from unaffiliated market makers or other financial institutions
that trade in similar investments or based on prices provided by independent third party pricing services. For investments where
there are no available bid quotations, fair value is derived using proprietary models that consider the analyses of independent
valuation agents as well as credit risk, liquidity, market credit spreads and other applicable factors for similar transactions.

Due to the nature of our strategy, our
portfolio includes relatively illiquid investments that are privately held. Valuations of privately held investments are inherently
uncertain, may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially
from the values that would have been used if a ready market for these investments existed. Our net asset value could be materially
affected if the determinations regarding the fair value of our investments were materially higher or lower than the values that
we ultimately realize upon the disposal of such investments.

Our board of directors is ultimately and
solely responsible for determining the fair value of the portfolio investments that are not publicly traded, whose market prices
are not readily available on a quarterly basis in good faith or any other situation where portfolio investments require a fair
value determination.

The valuation process is conducted at
the end of each fiscal quarter, with a portion of our valuations of portfolio companies without market quotations subject to review
by one or more independent valuation firms each quarter. When an external event occurs with respect to one of our portfolio companies,
such as a purchase transaction, public offering or subsequent equity sale occurs, we expect to use the pricing indicated by such
external event to corroborate our valuation.

With respect to investments for which
market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as
described below:

•

Our quarterly valuation process begins with each portfolio company or investment being initially valued by investment professionals
of our investment adviser responsible for credit monitoring.

•

Preliminary valuation conclusions are then documented and discussed with our investment committee and our investment adviser.

•

The audit committee of the board of directors reviews these preliminary valuations.

•

At least once annually, the valuation for each portfolio investment is reviewed by an independent valuation firm.

•

The board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith.

33

Fair value is the price that would be
received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters.
Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of
management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and
the instruments’ complexity. Our fair value analysis includes an analysis of the value of any unfunded loan commitments.
Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based
upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based
upon the transparency of the inputs to the valuation of the investment as of the measurement date. The three levels are defined
as follows:

Level 1: Quoted prices (unadjusted) for identical
assets or liabilities in active public markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs
other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs
that reflect a reporting entity’s own assumptions about what market participants would use in pricing an asset or liability.

In certain cases, the inputs used to measure
fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s categorization
within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment
of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors
specific to the financial instrument.

Fair value for each investment is derived
using a combination of valuation methodologies that, in the judgment of the investment committee of the investment adviser are
most relevant to such investment, including being based on one or more of the following: (i) market prices obtained from market
makers for which the investment committee has deemed there to be enough breadth (number of quotes) and depth (firm bids) to be
indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received in an arms’-length
transaction, (iii) a discounted cash flow analysis, (iv) the guideline public company method, (v) the similar transaction
method or (vi) the option pricing method.

Investment Transactions and Related Investment
Income and Expense

We record our investment transactions
on a trade date basis, which is the date when we have determined that all material terms have been defined for the transactions.
These transactions could possibly settle on a subsequent date depending on the transaction type. All related revenue and expenses
attributable to these transactions are reflected on our consolidated statement of operations commencing on the trade date unless
otherwise specified by the transaction documents. Realized gains and losses on investment transactions are recorded on the specific
identification method.

We accrue interest income if we expect
that ultimately we will be able to collect it. Generally, when an interest payment default occurs on a loan in our portfolio, or
if our management otherwise believes that the issuer of the loan will not be able to service the loan and other obligations, we
place the loan on non-accrual status and will cease recognizing interest income on that loan until all principal and interest is
current through payment or until a restructuring occurs, such that the interest income is deemed to be collectible. However, we
remain contractually entitled to this interest. We may make exceptions to this policy if the loan has sufficient collateral value
and is in the process of collection. Accrued interest is written off when it becomes probable that such interest will not be collected
and the amount of uncollectible interest can be reasonably estimated. Any original issue discounts, as well as any other purchase
discounts or premiums on debt investments, are accreted or amortized to interest income or expense, respectively, over the maturity
periods of the investments.

Interest expense is recorded on an accrual
basis. Certain expenses related to legal and tax consultation, due diligence, rating fees, valuation expenses and independent collateral
appraisals may arise when we make certain investments. These expenses are recognized in the consolidated statement of operations
as they are incurred.

34

Loan Origination, Facility, Commitment and Amendment
Fees

We may receive fees in addition to interest
income from the loans during the life of the investment. We may receive origination fees upon the origination of an investment.
We defer these origination fees and deduct them from the cost basis of the investment and subsequently accrete them into income
over the term of the loan. We may receive facility, commitment and amendment fees, which are paid to us on an ongoing basis. We
accrue facility fees, sometimes referred to as asset management fees, as a percentage periodic fee on the base amount (either the
funded facility amount or the committed principal amount). Commitment fees are based upon the undrawn portion committed by us and
we record them on an accrual basis. Amendment fees are paid in connection with loan amendments and waivers and we account for them
upon completion of the amendments or waivers, generally when such fees are receivable. We include any such fees in interest income
on the consolidated statement of operations.

Item 3. Quantitative and Qualitative Disclosures About
Market Risk

We are subject to financial market risks,
including changes in interest rates. During the period covered by our financial statements, several of the loans in our portfolio
had floating interest rates, and we expect that many of our loans to portfolio companies in the future will also have floating
interest rates. These loans are usually based on a floating rate based on LIBOR that resets quarterly to the applicable LIBOR.
Interest rate fluctuations may have a substantial negative impact on our investments, the value of our common stock and our rate
of return on invested capital. Since we plan to use debt to finance investments, our net investment income will depend, in part,
upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can
offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment
income.

Assuming that the statement of assets
and liabilities as of September 30, 2013 were to remain constant and that no actions are taken to alter our existing interest rate
sensitivity, a hypothetical immediate 1% change in interest rates would not significantly impact the value of our portfolio. As
of September 30, 2013, all of the floating rate investments in our portfolio had an interest rate floor. Variable-rate investments
subject to a floor generally reset periodically to the applicable floor and, in the case of investments in our portfolio, quarterly
to a floor based on LIBOR, only if the floor exceeds the index. Under these loans, we do not benefit from increases in interest
rates until such rates exceed the floor and thereafter benefit from market rates above any such floor.

Although management believes that this
analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit markets,
the size, credit quality or composition of the assets in our portfolio and other business developments, including borrowing, that
could affect net increase in net assets resulting from operations or net income. It also does not adjust for the effect of the
time-lag between a change in the relevant interest rate index and the rate adjustment under the applicable loan. Accordingly, we
can offer no assurances that actual results would not differ materially from the statement above.

We may in the future hedge against interest
rate fluctuations by using standard hedging instruments such as futures, options and forward contracts to the extent permitted
under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest
rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in
our portfolio with fixed interest rates.

Item 4: Controls and Procedures

As of the period covered by this report,
we, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on our evaluation, our management,
including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective
in timely alerting management, including the chief executive officer and chief financial officer, of material information about
us required to be included in our periodic SEC filings. However, in evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and operated, are based upon certain assumptions about
the likelihood of future events and can provide only reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
There has not been any change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange
Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.

35

Part II – Other Information

Item 1: Legal Proceedings

Although we may, from time to time, be involved in litigation
arising out of our operations in the normal course of business or otherwise, WhiteHorse Finance, WhiteHorse Advisers and WhiteHorse
Administration are currently not a party to any material legal proceedings.

Item 1A: Risk Factors

In addition to the risk factors set forth in our annual report
on Form 10-K for the year ended December 31, 2012, you should carefully consider the “Risk Factors” discussed in our
amended registration statement on Form N-2 filed with the SEC on July 15, 2013, which could materially affect our business, financial
condition and/or operating results. Additional risks and uncertainties not currently known to us or that we currently
deem to be immaterial also may materially affect our business, financial condition and/or operating results.

Item 2: Unregistered Sales of Equity Securities and Use of
Proceeds

None.

Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None.

Item 6: Exhibits

EXHIBIT INDEX

Number

Description

4.1

Indenture, dated as of July 23, 2013, relating to the 6.50% Senior Notes due 2020 (Incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K (File No. 814-00967), filed on July 23, 2013)

4.2

Form of Senior Notes (included as part of Exhibit 4.1)

10.1

First Amendment to Term Loan Agreement, dated as of July 9, 2013 (Incorporated by reference to Exhibit (k)(12) to the Company’s amended registration statement on Form N-2 (File No. 333-187805), filed on July 11, 2013)

31.1*

Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2*

Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1*

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2*

Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* Filed herewith

36

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Site Links

Based on public records. Inadvertent errors are possible. Getfilings.com does not guarantee the accuracy or timeliness of any information on this site. Use at your own risk.
This website is not associated with the SEC.